Risk management is the process of identifying the personal and business risks that a family faces in the running of their business, and then applies prudent strategies to help minimize, eliminate or transfer these risks. Risk can come in many forms: from creditors to lawsuits, to the unexpected happening such as a death or disability.
Insurance planning can help mitigate risks by transferring certain risks to an insurance company. Insurance can also be used as a tool to help accomplish your estate planning, business planning and philanthropic goals.
Overall, risk management and insurance planning play an important role in a family’s wealth planning picture.
We were called upon to help facilitate an estate plan for two business partners. We addressed the question of what would happen to salary payments should either partner become disabled. A review of their shareholders agreement showed that this scenario had not been addressed. Should one of the partners become disabled, there was no written or verbal agreement as to what was to happen with their salary payments. In a situation like this, the disabled person would likely want their salary to be continued, whereas this might not be possible for the business and could quickly lead the business into financial difficulties. The company would incur extra expenses and lost revenues as a result of either partner becoming disabled, which would have made it difficult for salary payments to the disabled partner to continue.
With the help of our network of professional advisors, we were able to amend the shareholders agreement and add a provision that stated salary payments would continue to a disabled partner for a period of 90 days only. We then implemented disability insurance plans on each of the partners that made payments after the 90-day period. With this planning we were able to reduce the risk to the company should a shareholder employee become disabled, while also ensuring the disabled partner received an uninterrupted income stream using insurance.
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